The Strategist

OECD countries attract record levels of borrowing

02/26/2021 - 03:02

Against the backdrop of sharply widening budget deficits, governments in the OECD's advanced economies attracted a record $18 trillion in borrowing in the "covid" year.

Toshimasa Ishibashi
Toshimasa Ishibashi
This is an increase of $6.8 trillion from a year earlier, according to the OECD. This amount is equivalent to 29% of total GDP of these countries (a year earlier - 17%). On average, in recent years, OECD countries have borrowed $10.5 trillion a year, and 80% of that amount went to refinance old debt. This year, borrowing could amount to another $19 trillion, the organisation expects.

The net bond debt of OECD countries rose to $8.6 trillion in 2020 against a $1.7 trillion increase in 2019 (more than the total for the last five years). This year, the increase in debt could be another $5 trillion. As a result, the debt-to-GDP ratio of OECD countries, which increased by 16 percentage points in 2020, will rise by another 4 percentage points in 2021 to around 90% of GDP, or $60 trillion.

The increase in government bond debt was accompanied not by an increase, but by a decrease in the cost of servicing it - for bonds issued in US dollars, the average yield fell from 2% in 2019 to 0.7% in 2020, for those denominated in euros - from 0.6% to 0.2%. Not only investors' flight from risk, but also the active stimulative policy of central banks contributed to the decline in rates. All told, regulators in 28 developed nations that took such actions bought $4.5trn in government bonds last year, making them the biggest lenders in many countries (e.g. 45% of outstanding bonds in Sweden and Japan and over 20% in the US).

More than 20% of bonds in the OECD have been issued at negative yields (in the eurozone 50%, in Japan 60%), and 80% at less than 1% per annum. Germany (97%), France (68%) and Japan (60%) had the highest proportion of debt issued at negative rates. However, the faster economic recovery in the second quarter of this year and accelerating inflation may have an impact on the increase in required yields.